Streamlining Double Taxation Relief and International Tax Agreements : Clause 159 of Income Tax Bill, 2025 Vs. Section 90A of Income Tax Act, 1961

Clause 159 Agreement with foreign countries or specified territories and adoption by Central Government of agreement between specified associations for double taxation relief.

Income Tax Bill, 2025

Introduction

Clause 159 of the Income Tax Bill, 2025, represents a pivotal statutory provision concerning India's international tax policy, particularly regarding double taxation relief, adoption of agreements with foreign countries and specified territories, and the procedural framework for such agreements. This clause is intended to replace and consolidate the existing framework under section 90A of the Income Tax Act, 1961, and is implemented in conjunction with procedural rules such as Rule 21AB of the Income-tax Rules, 1962. The significance of Clause 159 lies in its comprehensive approach to tackling double taxation, facilitating exchange of information, and ensuring compliance with evolving international standards in cross-border taxation. The following commentary provides a detailed analysis of Clause 159, its objectives, operative provisions, practical implications, and a comparative assessment with the current legal regime u/s 90A and Rule 21AB.

Objective and Purpose

The legislative intent behind Clause 159 is to modernize and clarify India's legal framework for granting relief from double taxation and to provide mechanisms for the avoidance of double taxation in accordance with international best practices. It also aims to prevent treaty abuse, facilitate the exchange of information, and provide for the recovery of taxes in cross-border situations. The provision is designed to align with India's obligations under bilateral and multilateral treaties and to address concerns around tax evasion, avoidance, and treaty shopping.

Historically, Section 90A was introduced to empower the Central Government to adopt agreements entered into by specified associations for double taxation relief. Over time, with the dynamic nature of global tax practices and the increasing need for transparency and anti-abuse measures, the legislative focus has shifted toward more robust compliance requirements and greater clarity in the interpretation and implementation of such agreements. Clause 159 is a response to these developments, seeking to provide a holistic and updated legal framework.

Detailed Analysis of Clause 159 of the Income Tax Bill, 2025

Power of Central Government to Enter into Agreements

Clause 159(1) empowers the Central Government to enter into agreements with the government of any other country or a specified territory. The term "specified territory" is defined in sub-section (9) as any area outside India notified by the Central Government. The purpose of such agreements is further elaborated in sub-section (3), encompassing relief from double taxation, exchange of information, and tax recovery mechanisms.

The provision for notification ensures that any agreement entered into by the Central Government is operationalized through a formal process, thereby ensuring transparency and enforceability. This mirrors the existing framework u/s 90A(1), but Clause 159 makes explicit reference to both countries and specified territories, providing greater flexibility for India to engage with non-sovereign jurisdictions (e.g., territories with special tax regimes).

Agreements by Specified Associations

Clause 159(2) allows specified associations in India to enter into agreements with their counterparts in specified territories, subject to adoption and notification by the Central Government.

This reflects the existing mechanism in Section 90A(1), where associations (rather than governments) can negotiate agreements to facilitate double taxation relief in specific sectors or industries (e.g., shipping, airlines, or professional bodies).

The requirement that the Central Government must notify and implement such agreements ensures that there is governmental oversight and that the agreements do not conflict with India's broader tax policy or international obligations.

Scope and Purposes of Agreements

This is a crucial Clause 159(3), outlining the permissible purposes for which agreements may be entered:

• Granting Relief in respect of Double Taxation: This covers income that has been taxed both in India and the foreign country or specified territory, or is chargeable to tax under both jurisdictions. The clause explicitly mentions the promotion of mutual economic relations, trade, and investment as underlying objectives, aligning with international tax treaty practice.
• Avoidance of Double Taxation: The provision is careful to state that avoidance should not create opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty-shopping. This reflects India's commitment to anti-abuse principles, as embodied in the OECD's BEPS (Base Erosion and Profit Shifting) project and the Multilateral Instrument (MLI).
• Exchange of Information: Agreements may provide for the exchange of information to prevent or investigate tax evasion or avoidance. This is critical for effective international cooperation and enforcement.
• Recovery of Income-tax: The provision allows for mutual assistance in the recovery of taxes, which is increasingly important in a globalized world where assets and taxpayers are mobile.

These purposes are largely reflective of Section 90A(1), but Clause 159 provides a more detailed and structured articulation, particularly with respect to anti-abuse measures.

Application of More Beneficial Provisions

Clause 159(4) provides that, where an agreement has been entered into and notified, the provisions of the Income Tax Act will apply to the extent they are more beneficial to the assessee. This is a well-established principle in Indian tax law, ensuring that taxpayers are not disadvantaged by the operation of a treaty or agreement. This provision is retained from Section 90A(2).

Non-discrimination Principle

Clause 159(5) clarifies that charging a foreign company or a company incorporated in a specified territory at a higher rate than a domestic company does not constitute less favourable treatment. This is consistent with the explanation in Section 90A, and is important for addressing claims of discrimination under tax treaties, particularly under non-discrimination articles.

Application of Anti-abuse Provisions

Clause 159(6) provides that, notwithstanding the "more beneficial" rule in sub-section (4), the provisions of Chapter XI shall apply to the assessee even if such provisions are not beneficial.

This is analogous to Section 90A(2A), which refers to Chapter X-A (General Anti-Avoidance Rules, or GAAR). The intent is to ensure that anti-abuse rules override treaty or agreement benefits, reinforcing India's commitment to combating tax avoidance.

Interpretation of Terms

Clause 159(7) provides a hierarchical approach to the interpretation of terms used in agreements:

• If a term is defined in the agreement, that definition prevails.
• If not defined in the agreement but defined in the Act, the Act's definition applies.
• If not defined in either, the meaning assigned in a notification by the Central Government applies.
• If still undefined, the meaning in other Central Government tax laws or, failing that, in other Central Government laws applies.

This is a more elaborate version of the interpretive rules found in Section 90A(3), and the various explanations, providing greater clarity and reducing the scope for interpretive disputes.

Conditions for Claiming Relief by Non-residents

Clause 159(8) stipulates that a non-resident assessee can claim relief under an agreement only if:

1. A certificate of residence is obtained from the government of the relevant country or specified territory, and
2. Such other documents and information as may be prescribed are provided.

This is in line with Section 90A(4) and (5), and is operationalized through Rule 21AB, which prescribes the details and documentation (such as Form 10F) required to substantiate the claim.

Definitions

Clause 159(9) defines "specified association" and "specified territory." The definitions are substantially similar to those in Section 90A, ensuring continuity and clarity.

Practical Implications

Clause 159 has significant practical implications for various stakeholders:

• Taxpayers (Businesses and Individuals): The provision offers clarity and certainty in claiming relief from double taxation, subject to compliance with documentary requirements. It also ensures that taxpayers cannot abuse treaty benefits through treaty-shopping or artificial arrangements.
• Regulators and Tax Authorities: The Central Government and tax authorities are empowered to negotiate, notify, and interpret agreements, and to enforce anti-abuse provisions. The hierarchical interpretive framework aids in resolving disputes over the meaning of terms.
• International Counterparts: The provision facilitates international cooperation in tax matters, including information exchange and tax recovery, in line with global standards.
• Compliance and Documentation: The requirement for certificates of residence and prescribed documentation (as per Rule 21AB) imposes additional compliance obligations on non-resident taxpayers seeking treaty benefits.

Comparative Analysis with Section 90A and Rule 21AB

1. Structural and Substantive Similarities

• Both Clause 159 and Section 90A empower specified associations to enter into agreements for double taxation relief, subject to adoption by the Central Government.
• The purposes for which agreements may be entered (relief from double taxation, avoidance of double taxation, exchange of information, recovery of tax) are substantially identical.
• Both provisions require that the Act's provisions shall apply to the extent they are more beneficial to the assessee.
• The anti-abuse override (application of GAAR/Chapter XI or X-A even if not beneficial) is present in both.
• The interpretive hierarchy for undefined terms is present in both, though Clause 159 provides a more structured, multi-tiered approach.
  • Both require a certificate of residence and other prescribed documentation for non-residents to claim relief, with Rule 21AB detailing the procedural requirements.

2. Key Differences and Enhancements in Clause 159

• Explicit Reference to Specified Territories: Clause 159, from the outset, refers to both foreign countries and specified territories, giving greater flexibility to engage with a wider range of jurisdictions.
• Expanded Anti-abuse Language: The language regarding avoidance of double taxation is more robust in Clause 159, explicitly mentioning treaty-shopping and indirect benefits to residents of third countries.
• Detailed Interpretive Framework: Clause 159(7) sets out a comprehensive, multi-layered approach for interpreting undefined terms, reducing ambiguity and potential for disputes.
• Broader Documentation Requirements: Clause 159(8)(b) refers to "such other documents and information as prescribed," suggesting that the documentation requirements may be expanded or clarified by future rules (building upon Rule 21AB).
• Clarification of Effective Dates: Clause 159 makes clear that definitions and interpretations assigned by notification or law are deemed effective from the date the agreement comes into force, addressing potential retroactivity concerns.
• Integration with Chapter XI: The reference in Clause 159(6) is to Chapter XI (which may encompass a broader range of anti-abuse measures) rather than only Chapter X-A (GAAR) as in Section 90A(2A).

3. Rule 21AB: Procedural Framework

Rule 21AB operationalizes the requirements of Section 90A(4) and (5) (and, by extension, Clause 159(8)), by prescribing the information and documentation (in Form 10F) that must be furnished by non-resident taxpayers seeking treaty relief. The rule also provides for the maintenance of supporting documents and the process for Indian residents to obtain certificates of residence.

Clause 159(8) refers to "such other documents and information as prescribed," which will likely continue to be governed by Rule 21AB or its successor under the new regime. The procedural emphasis on documentation and verification is a key compliance safeguard against abuse of treaty benefits.

Conclusion

Clause 159 of the Income Tax Bill, 2025, represents a significant evolution in India's legal framework for double taxation relief and international tax cooperation. While it builds upon the foundation laid by Section 90A and Rule 21AB, it introduces greater clarity, stronger anti-abuse safeguards, and a more comprehensive interpretive framework. The provision is designed to balance the need for relief from double taxation with the imperative to prevent treaty abuse and ensure effective enforcement. Its implementation will require careful attention to compliance by taxpayers and robust administration by the tax authorities. As international tax norms continue to evolve, further refinement and judicial clarification may be necessary to address emerging challenges and ensure that India's tax treaty policy remains both effective and fair.

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Full Text:

Clause 159 Agreement with foreign countries or specified territories and adoption by Central Government of agreement between specified associations for double taxation relief.

 

Dated: 23-4-2025